Philip Hodgetts’ unique blend of business and production knowledge gives him insight into the current state of the industry, and a remarkably accurate look forward. Here he shares his thinking, and points to articles of interest from other sites, with context as to why they're interesting.

Archive for May 2009

On Wednesday I more than doubled the sales of the paperback edition of The New Now. Since the paperback has just gone on sale, that’s not surprising. This is our first foray into publishing via paperback and we’re not certain how it’s going to go. We’ve had great success (for a book) via our PDF publishing efforts, but are only now giving paperbacks a go.

It’s not hard to understand why. The deals being offered by publishers in our space are, frankly, insulting for the amount of work that goes into creating a book. By self publishing – and giving people a choice of an information-only PDF or the same information in a solid book form (well, paperback) – the author gets a larger slice per book. It’s not unusual for an author to make more money from the Amazon Associates commission on the sale than from the publisher. Seriously.

That means that books break even for the author much faster and the author retains the copyright. While in theory the author owns the copyright for a book through a traditional publisher, in practice, while there’s any outstanding balance due to the publisher, the publisher owns the rights.

The way a book deal works is that the author is paid an advance, based on the expected sales of a book. That used to be based on 5,000 units selling at full retail (because author’s don’t get a penny from remaindered and discounted copies). While there have been one or two breakout successes in the space, most books never reach that level of sales so the advance is never fully repaid from sales, and consequently the publisher owns the work. Since the standard contract also allows them to publish new editions with new authors (if the original author declines), effectively the author has lost control of their work.

Self publishing the HD Survival Handbook we reached the level of the currently offered advances with just 375 sales. The book became profitable (i.e. it returned a reasonable return for the amount of time that went into it) at about 600 copies and sales have been way above that.

It’s all possible because new printing technology prints soft-cover books very, very quickly (about 6-8 minutes) and remarkably cheaply, without having to commit to a large pre-order. This technology is going to get twice as fast for half the cost in the generation of printing/binding machines just announced. The cost of printing the book is almost inconsequential.

This is what digital technologies do when they disintermediate an industry. Like the record labels and (to a much lesser degree TV and Movie studios) the role of the publisher – the intermediary who traditionally made the most money – has faded.

An author would have gone to a publisher to: a) fund the printing of the physical books, b) give the book an ISBN, c) get the book into “the channel” – the bookstores where people can buy it, and d) promote the book. Through CreateSpace the paperbacks are printed as they’re ordered (a.k.a on demand) and CreateSpace assigns the ISBN so the book can be found by any reseller. The book is automatically listed in Amazon because Amazon owns CreateSpace. While, in theory, a publisher would promote the book, in practice for most books on production and post-production, that meant sending out a media blast to the usual suspects and from there it was up to the author to promote the book.

CreateSpace gives me all of those. I own the copyright; books are printed on demand inexpensively enough that the return from an Amazon sale is only slightly less than the return from a PDF sale (so the knowledge carries the same value). It’s listed in the only bookstore my customers are likely to use, although it can be ordered in by any bookstore – online or physical. Better still, I directly benefit from new sales, rather than simply promoting the book to recover money I’ve long spent (the advance).

The author is an independent in the disintermediated world. Similarly, digital video technologies allow writer/producer/directors to make their project without needing the backing of a studio. Budgets can be shrunk considerably when you take out the middle man. The most expensive part of an Amazon sale is the Amazon commission, which is more than double the cost of producing the physical book.

Even using that third party distribution channel, the return per sale is way higher than from a publisher.

Similarly owning the copyright for a reasonably-budgeted production leaves margin to offer producers or allows the creator to go direct to the viewer. (The only thing I call New Media!)

When more money goes back to the producers more production gets done, because shows can be supported by smaller audiences, in the same way that a book can sell many fewer copies but still make a better return for the author than through traditional channels.

Well, I haven’t had a real good rant for a while – in fact haven’t written much lately – but I’m finally drive to a good old-fashioned rant against stupidity. There seems to be a lot of it going around right now!

Politicians are an easy target, particularly when they get into any sort of tech areas, where they only open their mouth to demonstrate how stupid they are. For example, Missouri passed a law that text messaging is fine if you’re over 21 if you’re over 21! Stupid! Texting while driving is dangerous, period. Not only is it stupid to have a specific law against it (it’s always distracted driving, which has been illegal for years) but it’s a stupid law. What magically happens on the anniversary of 21 years alive that gives the driver super-powers to focus on two things at once? Stupid!

Then there’s stupid California, who are insisting on taking their (obviously illegal) video-game sales law to the US Supreme Court. They’ve “only” wasted $1 million of tax payers’ money on a law that’s been struck down in 12 rulings in the last eight years as State by State have tried to bring in similar legislation that has always been struck down. Stupid waste of tax payers’ money in a State that’s just about bankrupt. Stupid!

And there’s STUPID, stupid, stupid South Carolina Attorney General Henry McMaster, who tried to go after the principals of Craigslist despite the very, very clear provisions of the DMCA Safe Harbor provisions. (Section 230 of the DMCA if he’d like to look it up.) Pure political grandstanding from a stupid man who, rightly, now has an injunction against him and his office preventing them from acting. Craigslist quite rightly pointed out they are doing nothing illegal, that there is no legal way to go after the principals of the company and that there are wider and greater “illegal” actions by newspapers and magazines in South Carolina. A stupid man who should be drummed out of office for stupidity alone.

Then there’s the stupid TV broadcasters who’s business model is changing, so they too want a bailout form the Federal Government. Stupid.

Now you can imagine that caught my eye, because I have a pretty much 100% contrary opinion – new media (Internet Video) is very unlikely to be advertising supported. So, I was interested in what was behind the assertion as this forgone conclusion had gone by without me noticing!

Turns out, if you follow the link in the quote, that no such thing was proven. Stupid!

The report they are actually commenting on (through very biased and uninformed eyes imnsho) did state that people “were willing” to put up with advertising to watch free video on the net. Not that people wanted to; where happy to; or other qualitative information, just that they would watch advertising to get free video. Woopee. Like that’s news.

But there isn’t enough advertising to fund new media; advertisers generally are not transferring substantial parts of their budgets to new media and that advertising support is the old media model and failing pretty much at every turn.

And yet, this is the “future”? The only future we’re considering? Even when their own report on the survey concludes with:

“The research suggests that people trying to make money with video podcasts and short-form Internet video may need to look for options other than traditional intrusive ads.”

How stupid is that? And yet, these type of stupid people have jobs! They have employers who obviously know less than they do and won’t call someone to task for drawing a clearly bogus conclusion (is the future) in one article that is not supported by the referenced article. Now that’s clearly stupid.

It’s particularly stupid when the New York Times is reporting in an article titled Ad Revenue on the Web? No Sure Bet that web startups are looking beyond advertising as a business model. (Well, d’oh, what have I been saying for the last two years?)

It’s also stupid when better thinkers in the space, like Chris Brogan, in an excellent post on The Next Media Company says as it’s fifth point:

“Advertising cannot be the primary method of revenue.”

Anyone who’s not stupid has realized by now that advertising is not going to be the predominant means of supporting new media. It’s not even desirable because as soon as you take in advertising you’re beholden to the advertiser not your audience.

And that’s stupid.

But not as stupid as Sony Pictures CEO Michael Lynton who thinks nothing good can come of the Internet, when the problem is that the company (and it’s CEO) are simply too stupid to adapt to changing business circumstances. That’s another whole level of stupid.

Stupid people. Do not want!

Oh wait, there’s another level of stupid! Commercials between web pages. Just when I hope we’ve reached the ultimate level of stupidity it turns out there’s another stupid person just waiting to be less thoughtful, with less consideration for the real world, than everyone else.

The article “Original Web Video Still A Bust” by Dan Fromer really made me smile. Web video – not year five years old – has not yet replaced programming from the major networks and studios. Who’d have thought!

It’s not like the early days of cable. Where articles written “Original Cable programming still a bust” in the mid 70’s and the very early days of Community Antenna/Access TV, the precursor to modern cable. It took more than 20 years of cable, and more than 10 years of the Telecommunications Act of 1996, which is when modern cable really started to take off before we got Mad Men or Breaking Bad or any of the current crop of high quality drama and comedy now available on cable.

We are much further advanced with Internet TV than we were at an equivalent stage of development for cable. Product equipment is much cheaper and much more accessible compared to limited access to a studio provided by the cable network as a condition of their franchise on a city. One studio that was a limited asset. Nowdays, pretty much anyone with an idea can create it. I’ve interviewed guests who made movies for under $500. Matthew Winer (in the Spring edition of Produced by magazine from the Producer’s Guild) says that he made his first film for $20,000.

But like cable the growth to quality programming will be slow and gradual. It won’t take 10 or 20 years but I do expect that it will be five to ten years before we get million dollar budget for programs specifically for Internet distribution. The numbers do add up if the distribution channels are handled right. (Hint: it won’t be advertising supporting it this time round, at least not in the annoying intrusive formats we’ve seen on television.)

So, it’s a little premature to say that original web video is a “bust” just yet. Get back to me in 2020 and I’ll be very surprised if we don’t have a vibrant new media creating great drama, comedy and other formats we haven’t seen yet for Internet distribution that is viewed primarily on TV screens (however the big set in the corner evolves).

In his latest column, The Future of Internet TV (in America) Robert Cringely talks about the success of Hulu and the two dominant modes of distribution: streaming (RTSP) or download (HTTP). Hulu is firmly in the streaming camp while Apple and iTunes are in the download camp. (YouTube acts like streaming in that no download is left that’s easily accessible, but in fact it’s a download mechanism, not streaming.)

Now, I’ve been a long term fan of the download model, being very taken by the efficacy of RSS for this type of distribution. So much so that I helped invent a technology for doing commercial distribution through RSS feeds. Cringely tells of the unsatisfactory experience attempting to stream from Hulu – with rebuffering needed several time, even after they dropped the quality of the stream. RTSP is hard to do well because so much of the delivery channel is beyond the control of the “broadcaster”. But like established business models, they try and shovel their old model into the new channel. Rarely works like that.

We love the idea of streaming video over the Internet directly on our television sets. The issue is, when you stream video to your house, you open yourself up to problems you don’t get with progressive download. With streaming you need to get a continuous bandwidth to cover the signal or there are hiccups or temporary freezes in the stream. This can happen on cable systems during peak periods when more people are sharing the neighborhood bandwidth.

Hulu is undoubtedly getting very popular, and will become more so now that Disney are joining the group (with Fox and NBC-U). However Cringely looks at what is a viable business and Hulu, YouTube et al fail. RTSP is expensive, but more importantly, advertising supported media on the Internet has no possibility in covering the cost of production any time soon.

In other words, the model that has sustained television for its life is probably not going to sustain whatever we’re going to call the same thing delivered via the Internet. Funding will have to change. Personally I’d prefer to pay the equivalent to advertising-revenue-per-viewer for a show (because it’s a relatively low 25-75c per viewer per show) and skip the advertising.

Cringely’s suggestion is that Apple, or Google, could easily chip in say $3 billion or so a year for programming production and commission the same shows as are broadcast now (or, in Fox tradition, the same shows with different names) from the same producers that produce the best entertainment now.

This is something I’ve hypothesized on myself so when Cringely is on the same page, I have to go re-examine my thinking. It worries me to agree when so often I don’t.

Let’s say a 13 episode half season costs from $32.5 milliion (Friday Night Lights or Mad Men) to say$ 60 million per 12 episodes. There can be some substantial saving if these series were made outside the Hollywood Studio system – probably halving the real cost, but let’s not go there right now. After all Cringely’s problem is that we can’t pay all those folk in the value chain from non-existent advertising revenue, while they do all get a small, slice of an iTunes Store sale.

For easy math, let’s say the average hour of “television” is going to cost 50 million per 13 week season, or 200 million for a year’s programming. As we saw in my earlier post about how the numbers stack up for new media, programming in that price range rates 4-5 million viewers (or it’s produced more cheaply or cancelled). Some programming, like the Daily Show, is very viable at 10c per viewer per show.

There is cheaper television. The Daily Show’s $5 million a year deal with Comedy Central buys about 80 TV hours a year. (161 half-hour shows in 2008) so Apple or Google pick up for $5.5 million or so per year. But the Daily Show is not Prime Time.

$200 million per Prime Time hour per year. $3 billion buys you 15 hours a day or Prime Time Television, with Network standard production and the expectation of Network size audiences. Keep in mind that Prime Time for the networks has been considered 22 hours a week, or an average of around 3 hours a day, not 15 hours a day.

Scale those numbers to Cable size budgets and audiences and an Apple or Google, putting in just 10% of their available cash-on-hand could create the equivalent of a five new Prime Time channels each.

It still seems that NBC-U, ABC-Disney, Fox and CBS need downloadable sales and rental channels more than ever. Clearly they don’t have the power in the argument.

Do I think Apple would ever go directly into the production business? Probably not “willingly” – as a first preference path – but as a bargaining ship against any network that wanted to withhold content….? It’s a very interesting thought. If Apple felt that commissioning the content themselves was in their best interest, they’d do it in a heartbeat. They have the money, it’s only a matter of a decision.

OTOH, I don’t think that will qualify for being ‘new media’ any more than I think Hulu does. My definition, What is New Media anyway?, came to the conclusion that new media is where there is a direct connection between the viewer and the producer. Having Apple commissioning shows would have Apple as the gatekeeper, rather than the network and their advertisers. I suppose getting the prissy advertisers out of the loop might improve the programming by allowing to be more real.

Let’s start by saying we’re working with a very specific type of video production: trade-show style video where there is an A-roll interview and limited b-roll that goes specifically with the A-roll. These are generally shot on a trade-show booth with shots of product from the booth.

Finisher was originally conceived as the book-end to First Cuts. First Cuts will save documentarians many weeks of work getting to first cuts, with the ability to create first cuts almost instantly while you explore the stories in the footage you have. These cuts are complete with story arc and b-roll. We worked on the assumption that an editor would probably delete the b-roll while they worked on cutting the a-roll into the finished form. (Although not necessarily: I cut one piece while keeping the b-roll around to save me having to go find it again.)

Finisher was suggested by Loren Miller of Keyguides fame who wanted an “editing valet” that would take his a-roll and add b-roll and lower third back in. That suggestion became Finisher.

However, I’ve been long interested in the application to these trade-show type edits that had never been nearFirst Cuts and had to use much simplified metadata. My gut told me that an experienced editor would be faster but the cost effectiveness of a novice with Finisher would be compelling.

I was wrong. As it turned out, I ended up being the editing contender. I was happy about that because I trust my abilities – I’m fast and effective at this type of video. Up against me was the software’s co-developer, Greg Clarke. Greg’s first FCP lessons (other than import XML, export XML, open a Sequence) were on Sunday afternoon ahead of a Tuesday afternoon shootout. To say his editing skills and FCP skills were rudimentary is a huge understatement!

Greg had his edit complete in 27 minutes from being presented with raw footage. (Both competitors saw the footage together in raw form in a new project.) This video shows the Greg + Finisher cut. It’s acceptable but could definitely use an experienced eye.

Until you work on the cost side of the equation. Let’s assume that an experienced editor is going to work for $45 an hour for this type of work. (That’s approximately the Editor’s Guild rate for an assistant on a low budget documentary.) Let’s also assume that we’re paying Interns $15 an hour.

Rounding to nearest quarter hours for easy math, my cut was $33.75 to the producer; the basic Finisher cut would be $7.50 and the Finisher plus novice with editor tidy-up (however you would write that elegantly) would add another $7.50 of craft editor on top of the cost of the Intern cut.

Under half price.

Scaling production

Here’s where it gets exciting (for me anyway – I am easily excited). The Digital Cinema Society and Studio Daily produced some forty videos during NAB 2009 with the talented Chris Knell editing. Let’s assume that Chris got paid the hourly rate he should have and worked 10 hour days (with breaks) to get forty videos done within the week. By rights he should have been paid in the order of $1800 for that time.

One craft editor can tidy and clean four videos an hour (five based on my numbers, but let’s say four). Each video will take an Intern about 30 minutes to prepare a video for the craft editor. We need two Interns to feed the skilled craft editor four videos an hour. (2 Interns producing two cuts with Finisher per hour). Now 10 videos can be produced in 2.5 hours instead of 10 (getting them to the audience faster).

Faster and cheaper: Cost per day is 2.5 x 45 = $112.50 plus 2 x 2.5 x 15 = $75 for a daily total of $187.50. For the four days the editor also gets to enjoy NAB – show or hospitality – and the total cost to the producer is $750, not $1800. The massive reduction in time means that one crew could shoot and edit without damaging their personal health.

So, what I learnt at the Face-off is that Finisher is a tool I can use as an editor (more on that shortly); it helps scale large volume production to get results out faster; and it can substantially reduce the cost of the mass production of these types of video. It was not only Studio Daily producing forty videos but FreshDV,Mac Video and MacBreak were also producing video and could have achieved similar savings.

Analysis

Both approaches required logging the material. During the Face-off we both trimmed or subclipped our b-roll to individual shots. (Here’s a tip we both used: drop the b-roll clip or clips in a Sequence and add edits, deleting bad sections of b-roll as you go, then convert to independent clips and name something appropriate. Finisher will use the name as metadata).

We also trimmed up our A-roll adding Markers as we went. For Finisher the Markers were added to Sequence Markers and given a duration that the novice wanted to cover with b-roll. I was placing Markers into the A-roll clip – so they would move when I cut the clip – so I could locate where b-roll shots would go based on topic.

What I learnt was that, if I adopted the convention from Finisher and basically added comments to my Markers that matched clip names, I could automate the process of laying in clips to the Timeline – 2 minutes for the Finisher round trip vs 10 or so to do it manually. It’s basically an automation tool.

Plus, as an editor I’d be closer to being finished as I’d place my Markers a heck of a lot better than a novice does/did.

But it’s really in the scaling and cost reduction for mass production that came as a surprise – a pleasant one.